Posts Tagged ‘impact investing’

Investors are responding to climate and societal crises

In the face of continued grim climate news and disturbing societal trends, it is increasingly clear that governments cannot marshall the resources—or perhaps even the will—necessary to the tasks before us. Increasingly, though, forward-looking investors are stepping in to help lead the way forward. Two recent reports offer some encouraging signs that global finance does indeed include many actors who are committed to the changes that we need.

Domestically, a progress report on an impact investing initiative from the White House Office of Social Innovation and Civic Participation shows actual investments to be outpacing and outperforming the initial commitments and expectations. When this private-investment initiative was announced in June 2014, they had $1.5 billion in new commitments to impact investments from private funds, foundation programs and endowments, investment banks, small family foundations, and nonprofit organizations. By the time the dust settled on the first round of planning, that total had grown to $2.5 billion to be invested over the five years from 2014-2019. The recent report followed up and found that in just the first eighteen months, through December 2015, almost half of this total had already been invested, suggesting that in the long run the goal may well be exceeded.  This is especially likely when we turn to the returns coming in on the early investments, which universally have exceeded expectations.  It turns out—no surprise to the SRI community—that investing in projects with strong social and environmental impact is very good business!  So far, about two-thirds has been invested for social impact and one-third for environmental impact, especially climate solutions. 81% has been invested here in the U.S.

financing_sustainable_development_momentum_to_transformation-212x300Internationally, the news is also encouraging. A recent UN report outlines the challenges before us: to meet both the UN’s 2030 Sustainable Development goals and the targets in the Paris climate agreement, $90 trillion of investment is needed over the next 15 years.  This amounts to about 8% of global GDP over this timeframe, a daunting but not unrealistic goal.  But to get there, it will mean marshaling the same power of private financing. As former Secretary of the Treasury Hank Paulson points out in an op-ed entitled How to Raise Trillions for Green Investments:

“The good news is that there is a global abundance of private capital. To unlock these riches, governments must create conditions that encourage private investment in clean technologies and sustainable development. With smart, well-designed and coordinated policies, financing models and instruments like bonds and incentive programs, countries have the potential to solve some of the planet’s most pressing environmental challenges while still maintaining economic growth.”

Paulson is especially enthused about the explosive growth of green bonds, which nearly quadrupled from 2013 to 2015, up to $42 billion.  Of this, 40% is being deployed in China, where the government there has set ambitious green energy and building targets.  The Building Energy Efficiency and Green Development Fund is a public-private partnership that will bring leading-edge technologies from U.S. companies to China to increase the energy-efficiency of new buildings there. (One more reason to NOT start a trade war with China!)

All this investment is still just the first few drops in the $90 trillion bucket, but the rapid ramping up of these and other green investment commitments suggests that the financial powers that be are finally waking up to the scope of our challenge and are ready to put their massive wealth to work making the changes that are needed. Time will tell whether it will be enough, but we’re encouraged that it’s happening on a scale we haven’t seen before.

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Feds tweak rules to encourage social investing by foundations

A new set of regulations issued by the US Department of Treasury opens the door for private foundations to direct more of their investments to socially and environmentally beneficial projects.  Foundations are careful to separate their investment portfolio, used to grow their asset base, from the funds used to further their charitable mission, distributed in the form of grants or loans.  In recent years, many foundations that wanted to support social entrepreneurship or make loans to organizations within the areas of their missions had to treat these as part of their grant-making budget, rather than as part of their investment portfolio.

The new rules clarify that foundations “can factor in how the anticipated charitable outcomes from the investment might further the foundation’s mission in addition to the financial returns that are typically considered.  Thus, a foundation may prudently choose to make investments that provide both a charitable and a financial return without fear of facing a tax penalty.”

For more on this welcome new Zone 8 and 9 development, see this press release, issued by the Director of what sounds like a fantastic place to work: the White House Office of Social Innovation and Civic Participation.

Also, see this recent article from the Natural Investment News, in which our own Michael Kramer discussed the implications of the new rules and related changes at the IRS.

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Is impact investing about market-rate returns—or redistribution and reparations?

In the wake of a recent conference on Finance & Democracy, Leslie Christian highlighted a fundamental tension within the philanthropic and impact investing community: at what point, if ever, do those with extreme wealth begin easing up on the “do well” side of the equation, and start putting more of their resources into the “doing good” mission?  In a brief post titled Confluence…or Collision?, Christian is pleased to see that “the rarefied world of Wall Street investing and its ‘good investors’ is now being infiltrated and questioned by a small, vocal, and growing number of people with wealth who are eager to question and redefine investing.”  She shares a striking moment, when one of the conference participants rose to challenge the underlying mindset of the managers of the Rockefeller Brothers Fund, which has been praised for its decision to divest from fossil fuels:

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Root Capital: “Investing in Resilience” for world’s farmers

Root Capital is a well-established nonprofit social investment fund that focuses on small farm businesses in the developing world.  They lend capital, provide training, and build the local market ecosystems that can help these small and growing businesses thrive. Like many others, Root Capital is rallying around the idea of resilience as a practical and powerful way to respond to the uncertainties of our changing climate.  Their new Issue Brief addresses this head-on; it’s called Investing in Resilience: A Shared Value Approach to Agricultural Extension.  As they note in the Executive Summary:

The science is clear: climate change is coming. What is less clear is how climate change will impact specific farmers, supply chains, or countries over different time horizons, and how stakeholders should prepare for these impacts. . .  . This issue brief focuses on scaling the use of climate-smart practices among smallholder farmers by working through local agricultural enterprises, such as farmer cooperatives or processors. Aggregating hundreds or often thousands of dispersed smallholder farmers, these enterprises represent a significant, but often overlooked, channel for delivering “last mile” agricultural extension – that is, services that provide farmers with the information and skills they need to improve their farming practices.

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Conservation finance poised for mainstream markets

Restoring wetlands, protecting working forests and farmland, and enhancing wildlife habitats are some of the most exciting avenues for resilient investing.  Such efforts provide tangible returns in the form of regional resiliency, and increasingly, they are being packaged into traditional investment vehicles that offer reliable financial returns as well.  Earlier this year, senior executives from Goldman Sachs, JPMorgan Chase, Credit Suisse, and others gathered to discuss what they see as a burgeoning market for conservation finance. “The mantra of this event is, ‘scalability, repeatability, investability’” said John Tobin, managing director and global head of sustainability at Credit Suisse.  And the numbers being bandied about are certainly exciting for those of us who’ve been touting the trailblazing—but modest—grassroots efforts of various regional organizations that have, until recently, been the primary movers and shakers in this realm.  Consider: while conservation efforts by governments and foundations have been funded to the tune of about $50 billion/year, 

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Unreasonable Group takes Diamandis to heart and goes for it

In recent weeks, we’ve seen a number of intriguing tweets and articles from the Unreasonable Group.  What’s this all about?  Obviously something about making positive change, not taking no for an answer. . . but how, and from what perspective?  Perhaps a radical offshoot of Occupy?  Nope, not quite.  Not even close.  It turns out that the Unreasonable Group is an umbrella for several related initiatives that aim to catalyze big money into a network of companies that are “dedicated to a new mode and new way of going about business. One that takes into account the value of all stakeholders involved, that is dedicated to transparency and vulnerability, that is pathologically collaborative, and one obsessed with leveraging profit to solve BFPs (Big F***ing Problems).”  And they’re definitely thinking big, with the Virgin Group as their long-term model:

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Farmland venture starts redemptions to first investors

Iroquois Valley Farms, one of the first ventures that raised investment monies to purchase and restore farmland, has successfully completed its initial phases and begun offering redemptions to its early investors.  Going forward, investors will be able to redeem their investments any time after a 7-year hold period.  The original 100 investors had bought in without knowing when, or if, they would get their money back, seeing this as a long-term investment in  Iroquois’ mission of preserving and providing access to farmland.  Having reached this point, Iroquois is gearing up to scale their project by raising $20 million in new investment (accredited investors only).

Since 2007, Iroquois has purchased 25 farms in Michigan, Maine, New York, Kentucky, Illinois and Indiana; 70% are being farmed by young farmers, most of them from second or third generation farming families.  As with the investors, the farmers leasing land from Iroquois have the right to move forward, by purchasing the farms after seven years of working them.  Likewise, they are welcome to continue leasing for as long as they’d like.

We love this model of farmland regeneration and ownership; kudos to Iroquois Valley Farms and its initial investors for showing that it can work for young farmers, for the land, and for investors. Visit their site to learn more; here are a couple of stories about farmers they’ve worked with:

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Social entrepreneurs making real change where it’s most needed

While big-picture trends continue to paint a worrying picture of our future, those of us with a more optimistic worldview find solace and inspiration in the countless smaller—but socially and environmentally transformative—initiatives taking place around the world.  Yes, the race between environmental calamity and evolutionary transformations is neck-and-neck, but the Dreamers, Drivers, and Doers among us see a real potential for rapid, exponential advances in the tech realm, alongside a wave of on-the-ground entrepreneurial visionaries driving rapid progress in health, education, and clean energy in communities around the world.  We received a fresh dose of inspiration from a compendium of “22 of the Most Fascinating Social Good Startups Changing the World.”  The common thread here is empowering individuals to create small companies that create new jobs and incomes while tackling local issues including poor sanitation, recycling, access to electricity, and supporting small farms.  Click through for a look at five of our favorites.

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How to raise $500 billion in 5 years for clean energy

A spate of recent headlines touted President Obama’s announcement that a new federal program had secured $4 billion in commitments from private equity investors to finance new clean energy projects.  Four billion sounds great, but it’s a drop in the bucket of the International Energy Agency’s estimate of what’s needed to keep global warming under 2 degrees centigrade—the IEA says we’ll need $500 billion in the next five years and $1 trillion by 2030.  And that’s the real goal of the DOE’s new Clean Energy Investment Center.  Impact investors already have $46 billion in the bucket, and globally, we’re halfway to that near-term $500 billion target.  The new federal initiatives aim to provide the information that foundations and other large investors need in order to get comfortable joining the green energy rush.  The Guardian offered up a great overview of how this announcement is about way more than this initial $4 billion:

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Inspiration and practical advice: investing in food, soil

Resilient investors are typically very attuned to the need and opportunities for investing in local, regional, and global farmland and habitat regeneration. Even recently, it was often difficult to find viable avenues for making these investments, but things are changing fast.  See our Zone 6 resources for many tangible, evolutionary options; and here are two recent online articles that offer both practical advice and big-picture perspectives that may inspire you to dig into this zone more actively.

The first is a great overview from Don Shaffer of RSF Social Finance.

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Kids today…changing the investment world!

We were inspired by a recent “open letter” written by Liesel Pritzker Simmons, a young Millennial who was sick and tired of hearing the oldsters bemoaning her generation’s listless ways.  She reminds the financial industry that the great wealth transfer that left baby boomers better off than any previous generation is about to bestow even larger estates on her generation, to the tune of $30 trillion in North America alone, and points to a report from Impact Assets titled, The Millennial Perspective: Understanding Preferences of the New Asset Owners.

But Liesel has her own bugle to sound and we found her core themes to be music to our ears:

  • Stop talking about trade-offs. Like many in my generation, I want to do good and do well; I want profit with purpose. We don’t have to settle for one or the other. I know Milton Friedman didn’t think it was possible. Spoiler alert: Milton Friedman is not our idol.
  • We want to create value, real value. I want my investments to help improve livelihoods for communities. I want to help improve the land we live on. I want to help reduce waste or carbon emissions. Sustainable, long-term financial return can only be generated by improving social or environmental value, not extracting it.
  • We have to broaden our definition of risk. Investors like me are not satisfied with the traditional definition of risk – standard deviation and variability of returns. I think that is way too narrow. Hopefully, we will still be alive in 50 years, and that smog-filled, diabetes-riddled world we are creating sounds awfully expensive to me, regardless of how much my portfolio outperformed its benchmarks in Q3 2014. When we decide not to price in the negative impacts of our investments today, we are creating more risk (that someone will have to pay for) down the road.

And most importantly, let’s finally acknowledge that every investment we make has an impact on the world around us. Let’s make it a good one!

A broader definition of wealth, looking beyond limited views of risk, embracing the effects our choices have on the world—that sounds to us like another resilient investor in the making!

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Bigger isn’t better. Better is better.

Leslie Christian is one of the shining lights of humane finance, and in her most recent missive, she zeroes in on a subject near and dear to our permie hearts: the importance of putting our money to work in service of healthy soil and intact habitat.  She brings us into the room as she and a circle of collaborators find their way toward new models for owning and managing farmland (the image is from their property, Living Lands), and then takes us along to a meeting of NatureVest, a new Nature Conservancy initiative aimed at bringing private investment into some of their conservation efforts.

But then she steps back and challenges those who dismiss such efforts as “on-offs” that are not worth our time because they can’t scale; her title says it all: Getting Off the Scales. The rest of the piece is a clarion call for a new way of looking at growing good ideas—getting bigger is often counterproductive; instead, let’s replicate and localize the core impulse and benefits of such projects.  We’re totally behind her appreciation for the inherently local qualities that underlie what we call regenerative investing.

You should definitely go read the whole thing (it’s only a few powerful paragraphs); here’s a teaser:

We seem to think it’s appropriate to scale everything—farms, education, healthcare, and even relationships. Yet, people and places are so much more diverse, nuanced and interdependent than assembly-line products or software code. When we scale enterprises that directly serve people and places in all of their uniqueness and weirdness, we must inevitably standardize our understanding of those people and places. In the process, we surely fail to engage them and ourselves fully. We sacrifice quality for quantity.  My reaction to scale is visceral and intense. I find it dehumanizing, single-minded, and boring!

These are the kinds of investments that should take over the world—not by scaling so that VCs and Wall Street can swoop in and do their “magic”, but by inspiring the participants, engaging the public and working at an essential level—real dirt, real trees, real plants, real people, real understanding and real value.

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